In China, the intensifying price war in the electric vehicle industry has led to a decrease in stock prices, putting Beijing in a difficult position. Despite the Chinese Communist Party’s attempts to restrain the price cuts led by BYD, analysts point out that weak demand and excess production capacity will squeeze profits, signaling that the industry reshuffle may just be beginning.
According to Bloomberg, the current capacity utilization rate in the Chinese automotive industry is only 49.5%. Even though the number of manufacturers decreased last year for the first time, the market still faces an oversupply situation. Analyst John Murphy from Bank of America predicts that there will be a “large-scale consolidation” in the future.
BYD recently lowered the starting price of its cheapest model to 55,800 RMB (approximately $7,771), triggering a general decline in automotive stocks. The Chinese Communist Party’s official newspaper, People’s Daily, also warned that cheap, low-quality products may damage the reputation of “Made in China” cars in the international market.
While consumers may benefit from lower prices on the surface, frequent price fluctuations have eroded trust, and automakers cutting costs may compromise quality and after-sales services. Voices on Chinese social media platforms have questioned “why not wait longer, it might get even cheaper”.
Last week, Beijing convened a meeting of senior executives from car companies, urging them to “self-regulate”, prohibiting selling at a loss or engaging in “unreasonable” price reductions, and focusing on the issue of “zero-mileage second-hand cars” – referring to new cars that are not registered but sold as used cars to artificially boost sales figures.
BYD is widely seen as the leader in the price war. Automotive consultant Jochen Siebert stated that the company aims to monopolize the market and push out its competitors, but this move has also raised concerns about dumping, dealer pressures, and supply chain disruption.
According to a report by AlixPartners, 16 new energy car brands exited the market in 2024, while 13 new startups emerged. Despite the enormous size of the Chinese market, slowing growth rates are forcing car companies to prioritize gaining market share. Jidu Auto, a joint venture between Geely and Baidu, reduced production capacity and sought new financing within a year of its market debut, reflecting the consolidation trend.
AlixPartners consultant Zhang Yichao stated that if leading car companies lower prices first and others do not follow suit, they risk elimination from the market. Coupled with increasing uncertainty in exports, the overall production capacity pressure becomes even heavier.
Despite the substantial export efforts by Chinese car manufacturers, the results have been limited. Siebert pointed out that the US market is nearly closed, with possible restrictions from Japan and South Korea on Chinese car companies, while the Russian market is increasingly challenging and opportunities in Southeast Asia are dwindling.
Financial risks in the supply chain have also emerged. BYD’s request for suppliers to lower prices at the end of last year raised suspicions of hiding debt through supply chain financing. GMT Research estimates that its actual net debt amounts to 323 billion RMB, far exceeding the officially disclosed 27.7 billion RMB.
The dealership system has also been hit hard, with two BYD dealership groups in two provinces closing since April.